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Q.
I am about to go into business. Should I incorporate?
A. That question cannot easily be answered. There are several
conventional ways to do business, some of which offer advantages
over the others. The sole proprietorship, for example, creates
no limitations on management or decision making, and the sole
proprietor has total enjoyment of the profits, or the burdens
of the losses. A partnership is an organization involving more
than one person, in which each of the partners participate in
the profits and losses. As with the sole proprietorship, and
unless you form a limited liability partnership, there is no
limitation on the partners' personal liability, and, in fact,
each of the partners may be personally liable for the other
partners' obligations. A corporation possesses the attributes
of limited liability. As a general rule, the officers, directors,
and shareholders are not personally liable for the corporation's
debts. Thus, if your concern is to limit your liability, you
should incorporate.
Q. What is a limited partnership?
A. It is a variation of the traditional partnership consisting
of two or more persons in which there are one or more general
partners (unlimitedly liable for the debts of the business with
general power of management), and one or more limited partners
who have no personal liabilities for the debts of the business,
and very limited powers of management.
Q. Is there an income tax disadvantage
to operating as a corporation?
A. Corporations are independent, separate tax-paying entities,
with their own tax rates. Absent special circumstances and an
election to be taxed as a "partnership," distributions by a
corporation to its shareholders may result in double taxation,
that is, taxable to the shareholders even though initially taxed
to the corporation.
Q. What factors should be considered
in determining whether to incorporate?
A. There are three basic variables, each of which required in-depth
discussion with a lawyer and an accountant. Your accountant
can best advise you on the difference in income tax treatment;
your lawyer can best advise you on the advantages of limited
liability and the costs and complexities of organization and
operation.
Q. My debts exceed my assets. How do
I go about being adjudged a bankrupt?
A. You must first file a petition with the bankruptcy courts.
The petition must be supported by schedules listing creditors,
details about your property and assets, and general information
about your income and financial history. There will be a meeting
of your creditors. There will be a gathering of your assets,
and the court might examine you and/or witnesses, and, in general,
look for any fraudulent conduct. Your assets will then be distributed
according to the bankruptcy statutes, with the objective being
to be released from debts. Generally speaking, you will not
be released from alimony or child support obligations, or liabilities
arising from fraudulent acts on your part.
Q. Must a contract be in writing to
be binding?
A. No, not all contracts need to be in writing to be binding.
Depending upon the nature of the agreement, certain oral contracts
are as binding as if they were written. Some agreements, however,
according to law, must be in writing in order to bind the parties.
Q. Can a person under 18 enter into
a binding contract?
A. A person under 18 may enter into a valid contract, but the
contract will be voidable at the "infant's" will.
Q. What is a Limited Liability Company?
A. The Limited Liability Company ("LLC") is a business form
which, generally speaking, combines the income tax benefits
of partnerships with the business advantages, including the
limitation of personal liability, afforded by corporations.
The laws that established and regulate LLCs differ from state
to state, so a thorough analysis of the possible benefits and
drawbacks should be made before you decide to establish the
LLC as the operating structure for your business. The same is
true of the Limited Liability Partnership ("LLP").
Q. How expensive is commercial litigation?
A. It depends on the number of hours devoted to the lawsuit,
and that depends on the complexity of the issues. Of course,
the best approach is one in the spirit of compromise, in an
effort to settle before the expenses get out of hand. But, compromising
claims sounding in unfair competition, or copyright and trademark
infringement, or breach of contract, often becomes impossible
until the discovery/inspection Frankenstein is completed . .
. something which in and of itself may result in substantial
fees and out-of-pocket expenses.
Q. Do I have to be "big business" to
afford your firm?
A. Of course not. Despite decades of experience in representing
national and international business entities in varied transactions
and litigation, we do have a sliding scale of hourly charges
for the small or medium sized business. And we have served as
General Counsel to one of New Your City's premier chambers of
commerce (consisting principally of small and medium sized entities)
for over 30 years.
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